PRESENTATION TO SUSTAINABILITY & THE MEXICAN FINANCIAL SECTOR SEMINAR

S t i bl D l tSustainable Development Risks and Opportunities

OCTOBER 2007

A dAgenda

• Overview of HSBCOverview of HSBC• Why sustainable development is changing the finance

sectorCh i th t i bilit i th t tt• Choosing the sustainability issues that matter

• Managing the downside:– sustainability risk managementy g

• Capturing opportunities– sustainable business development

• Climate Change: Risk or Opportunity?• Climate Change: Risk or Opportunity?• What is next? The future of sustainable finance

Overview of HSBCOverview of HSBC

How we’ve changed

20061982

312,000 staff

M th 10 000 ffi

42,000 staff

A d 1 000 ffi More than 10,000 offices

83 countries and territories

Around 1,000 offices

54 countries and territories

Profits: US$22bnProfits: HK$2.4bn (US$390m)

Assets: US$1.9 trillion

Market Cap: US$200bn

Assets: HK$379bn (US$58bn)

Market Cap: US$2bnHK GAAPHK GAAP

We are a broad-based universal bank, with four strategic businesses

Personal Financial Consumer finance will remain aPersonal Financial Services

Consumer finance will remain a core competence

Commercial Banking International franchise and connectivity is a unique platform

Across all these businesses, we

will meet our customers’

Corporate Investment Banking and Markets

Emerging Markets-led and financing-focussed

customers protection,

investment and insurance needs

Private BankingPowerful international network and connectivity with the rest of the Group’s businessthe Group s business

We have a diversified growth platform2006 Profit before tax (US$22,086m)By Geography By Customer

Asia39%

Europe32% Corporate,

Investment

Private Banking

6%Other (-2%)

Banking and Markets

26%

Personal Financial Services

43%

NorthL ti A i North America

21%

Latin America8% Commercial

Banking27%

Why sustainable development is y pchanging the finance sector

May 2004

Wh d d hi ?Why do we want to do this….?

Wh d d hi ?Why do we want to do this…..?

R iReputationpRiskRiskRevenue

I ibl lIntangible value…..

….is hard to earn and easy to destroy!

Choosing the sustainability issues g ythat matter

H “ i bl ” ?How “sustainable”…….?

Environmental responsibility

SUSTAINABLE

Economic Social

SUSTAINABLE DEVELOPMENT

Economic responsibility

Social responsibility

Our Corporate Sustainability StrategyOur Corporate Sustainability StrategyEB FO C

CLIMATECHANGE

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C S i biliCorporate Sustainability

Employee Ad i S iEmployee Engagement

Advisory Services

Direct ImpactFootprint Management

Group Corporate Risk Advisory

Management

Indirect Impactp p

SustainabilityBusiness

DevelopmentIndirect Impact

Brand & Marketing Communications

Community Investment

Philanthropy

g Communications & Reporting

Managing the downside:

Sustainability Risk Management

Sustainability risk management

Minimising the indirect impact of our lending

• Objectives:– Develops policies and

Peoplep p

processes to ensure that the Group protects its reputation and brand from environmental and reputational risk Processesp

– Ensures that these policies and processes are mainstreamed in the risk assessment and approval process through aapproval process through a programme of communication and training

Policies

Sustainability risk framework

Sustainability Risk StandardSustainability Risk Standard

Sustainability Risk PolicySustainability Risk Policy

Equator Principles Sector Policies

G idance Notes

Equator Principles Sector Policies

Guidance Notes

Sector guidelines

Energy

Metals and Mining

Energy

Chemicals

Freshwater infrastructure

TIME

Forest land and forest products

RISKRISK

Functional management of sustainability risk

Group Sustainable Development (GHQ GSD)

USA (HBUS)Eric Dettmer (Credit)

Asia Pacific (HBAP)Paul Norton( )

John LaidlowRichard Naughton

Canada (HBCA)Louie Hachey

UK & Europe (HBEU)

( )Sharon Walck (Policy)

Paul Norton

China (HBAP AOC)Pak Yue Hong

p ( )Roger Atkins (Credit Ops)

David Gay (CMB)Kevin Hutchings (CIBM)

Richard Martin (CRM)

Mexico (HBMX)Ruben ChavezCesarea MayaTeresa CaronErika Cano

Indonesia (HBAP IMO)Amol Titus

France (HBFR)Paul CollyerSouth America (HBBR)

Danish Qureshi

Argentina (HBAR)

Malaysia (HBMY)Wei Kwang Chong

Germany (HTDE)Berthold Mutschmann

Middle East (HBME)

Hang Seng (HASE)Patrick K T Ip

Argentina (HBAR)Moira Trigubo

Turkey (HBTR)Chile (HBCL)

José Toresano (Credit)Lloyd MaddockEsra Karslioğlu

( )Jorge Rogaler (CIB)

Overall risk assessment

A. HIGH RISK B. MEDIUM RISK C. LOW RISK NO RISK

4. NON-COMPLIANT

3. NEAR-COMPLIANT

2. COMPLIANT

1. LEADER

Capturing opportunities:

Sustainable Business Development

Sustainable business development

Capturing the opportunities Carbon Water

• Objectives– Focuses on key areas of business

development in:

Carbon Water

MicroForestryp– Climate change and low-carbon technology– Sustainable forestry– Water infrastructure

Microfinance– Microfinance

– Seeks to identify business development opportunities across all geographies, all customer groups, and all product groups

Custo

Prod Co

and support business units in capturing them; and to evaluate inbound business referrals

omer group

uct groups

ountries

ps s

Climate changeClimate change

Climate change matters...

We believe that climate change represents the largest single environmental challenge this century and thatsingle environmental challenge this century and that

financial institutions will play an important role in the shift to cleaner energy.

“HSBC is working to support the transition to a low-carbon economy. As a carbon neutral company, we are proud to be investing in renewable energy technologyproud to be investing in renewable energy technology including wind and solar power and hope that our actions will inspire other financial institutions to do the same.”

(Stephen Green, Group Chairman, HSBC Holdings plc May 2006)

Climate change: the business forecast...

• Climate change is happening and is urgent

• Our 125 million customers around the world will be affected by climate change

W d t t th i i li t i k• We need to support them in managing climate risks

• We can finance the shift to low carbon technologies

Cli t h b t kl d ith t d i i• Climate change can be tackled without damaging economic prospects

• There is a wide range of options for reducing emissionsThere is a wide range of options for reducing emissions

Managing our footprint…

We have 813,000t CO2 to manage…

HSBC is the world’s first carbon neutral bank

REDUCEREDUCE

HSBC Mexico Headquarters The new US$150 million h d t b ildi i M i

BUY RENEWABLES

OFFSET

headquarters building in Mexico City, 'Torre HSBC', has been designed and built to benefit the local community economically and environmentally, and to reflect local heritage. The environmental

We continue to buy electricity from ‘green’ or renewable sources Currently, we purchase green elecrticity in the UK, the US, Australia Brazil Irelandheritage. The environmental

initiatives applied to the new building have resulted in 55% less water usage and 40% less energy usage than comparable structures.

1 carbon credit = 1 ton of CO2 avoided• Additional • Credible

Cost effective

Australia, Brazil,Ireland, Luxembourg, Sweden and Switzerland.By purchasing green electricity or paying green tariff, HSBC is helping to support global investment in renewable energy • Cost effectivegy

Managing our indirect impacts…

Billion of Tons of Carbon Emitted per YearEmitted per Year

14 14 GtC/y

Hi t i l

Seven ‘wedges’

7 Flat path

Historicalemissions 7 GtC/y

01.9

0205520051955 2105

Our areas of focus…

• Wind, Solar PV

• Biofuels

Energy and Transport Efficiency• Energy and Transport Efficiency

• Fuel Switching

• Carbon Capture & Storage

• Landfill Gas/Methane Capture• Landfill Gas/Methane Capture

• Geothermal

• Nuclear, Hydrogen

Climate change: The Stern review

“We have the time and knowledge to act, but only if we act internationally strongly and urgently”act internationally, strongly and urgently”

(Sir Nicholas Stern)

• CO2 emissions: reduce by 80% by 2100

T h i ll d i ll i bl l ti i t• Technically and commercially viable solutions exist

• Costs of doing so now: 1% of global GDP (USD184bn)

• Costs of doing nothing: 5-20% of global GDP by 2050

Climate change: The Stern review

Recommendations:

• A global emissions trading system

• The deployment of low carbon technologies and upscaling of related R&D

• International collective government action

Our perception of opportunity…

$9bn $63bn$9bnGlobal Equity Investment in Cl T h 2006

$63bnGlobal Renewable Energy I t t 2006CleanTech, 2006 Investment 2006

$2 000bn$2,000bnGlobal Carbon Markets,2012 (UNEP FI)2012 (UNEP FI)

E i i B S i ChilLow Emission Buses, Santiago, Chile

What next?

The future of sustainable finance

Relative performance on sustainability

HSBCHSBC has pulled away from the pack

HSBC

from the pack in the past 24 months

Cumulative instances of positive minus negative newsSource: Covalence EthiQuote 10 Banks 2001 - 2006

Cumulative instances of positive minus negative news

FT ‘Sustainable Bank of the Year’ 20062006

HSBC top financial companyHSBC top financial company in ethical business survey for 2006

HSBC - Winner of the Climate P t ti A d 2007

Carbon Disclosure Project 2006 HSBC tops Climate

Protection Award 2007

j pLeadership Index 2006

A ll d ?Are we all done?

We have made a good start….

….but there is plenty more to do!

O “2020” Vi iOur “2020” Vision• Sustainability risk management will be mainstream

Cli t i k ill b t th th t t th t• Climate risks will be a top three threat to the sector• Regulation and voluntary action will drive change• Climate change concerns will drive massive investmentClimate change concerns will drive massive investment

in environmental infrastructure • Environmental asset pricing will expand beyond carbon

R t il ill d d fi i l d t• Retail consumers will demand green financial products• The SRI community will be a major force for change• Transparent reporting will be the normTransparent reporting will be the norm • Brands that take a position will survive and prosper

PRESENTATION TO SUSTAINABILITY & THE MEXICAN FINANCIAL SECTOR SEMINAR

S t i bl D l tSustainable Development Risks and Opportunities

OCTOBER 2007